Ask Question
28 November, 23:21

A hospitality operation has sales revenue of $462,000 with variable cost averaging 44%. Fixed costs are $188,000. The owner wants a net income after tax of $50,400 based on a tax rate of 28%.

a. Calculate the total additional sales revenue needed to support the desired net income after tax.

b. Calculate the total sales revenue required to cover fixed costs, tax, and net income after tax.

+4
Answers (1)
  1. 29 November, 00:34
    0
    A) Total Additional Sales Revenue =

    B) Total Sales Revenue =

    Explanation:

    Requirement A

    We know, according to the break-even formula, Target Profit = Target Sales - Variable expense - Fixed Cost - Tax

    (according to the net income after tax)

    As we need to find target sales, we do not have the variable expense and as the tax is based on the target profit, the new equation is -

    Target Profit = (Sales - Variable expense - Fixed Expense) (1 - Tax Rate)

    Target Profit = (Sales - Sales * 44% - $188,000) * (1 - 0.28)

    $50,400 = (Sales - 0.44 Sales - $188,000) * 0.72

    or, Sales - 0.44 Sales - $188,000 = $50,400 : 0.72

    or, Sales - 0.44 Sales = $70,000 + $188,000

    or, 0.56 Sales = $258,000

    Sales = $258,000 : 0.56

    Sales = $460,714 (Approx)

    Therefore, the company does not need to sell more to cover the tax rate. The sale of the company will decrease by $1,286.

    Req. B

    The company's total sales revenue will be $460,714 to cover fixed costs, variable costs, and net income after tax.

    It can be showed under the following calculation

    Sales $460,714

    Less: Variable expense (44% of sales) $ (202,714)

    Contribution Margin $258,000

    Less: Fixed Expense $ (188,000)

    Net Income before tax $70,000

    Less:Tax (70,000*28%) $ (19,600)

    Net income after tax = $50,400
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “A hospitality operation has sales revenue of $462,000 with variable cost averaging 44%. Fixed costs are $188,000. The owner wants a net ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers